Latin American banks are well positioned to comply with the full scope of Basel III rules outlined on Sunday, analysts say

Latin American banks are likely to comfortably comply with
further details of the Basel III framework that were mandated
by the Bank for International Settlements (BIS) on Sunday.

Under the maximum leverage ratio for banks stipulated by the
BIS, banks in Argentina, Brazil and Mexico — Latin
America’s Basel-adherent countries — will
have to hold capital equal to at least 3% of their assets from
January 2018.

The new metric, the leverage ratio, measures tier one
capital as a proportion of total assets. It is a second
regulatory capital metric, adding to the rule that came into
force in 2013 which measures bank capital as a proportion of
risk-weighted assets.

The incoming rule is unlikely to cause difficulties for
Latin banks, says Franklin Santarelli, managing director at
Fitch Ratings. "All banks in Argentina, Brazil and Mexico have
leverage ratios way above 3%," he tells LatinFinance.
"It’s rare to find a bank with less than 5%."

BIS also further specified details on the short term funding
requirements, known as the liquidity coverage ratio. The rule
calls for banks to hold enough liquid assets equal to cover a
30-day funding freeze. Under details released this week, BIS
gave regulators guidance on defining liquid assets. Those are
anyway typically more clear-cut in Latin America than other
parts of the world, where it was hotly debated whether covered
bonds, for example, could qualify.

"Most banks’ investment portfolios are 90%
government securities, and the rest of their balance sheet
tends to be in loans," says Santarelli.

Latin American banks have been less affected by tighter
funding and solvency regulations that their global peers,
although they have already taken measures to comply with the
new rules.